On Wednesday June 13, I wrote an article titled Pitney Bowes Inc.: Not Sexy But Good. Well - this issue is still not sexy but it is still good for a trade.
Before I begin to elaborate on the present situation let us first examine the previous trade on Pitney Bowes Inc. (PBI). I recommended buying Pitney Bowes Inc. on June 13 with a price target of $14.00. It hit our strike price on June 13. The position was closed on June 15 at $15.00. This is a gain of 7.14% in a relatively short timeline.
That said, I believe there is another opportunity to trade this issue. Go back and read the previous article to gain understanding as to what I was contemplating at that time. I am not going to regurgitate those matters again in this article.
Although I am not including the blocks in this article, I feel it is important to mention that the largest block since 2008 recently traded in this issue. This is clearly a reflection of a very important merchandising stance being established by the Designated Market Maker.
Another item of noteworthy value is that Pitney Bowes is in the process of forming a double bottom. Double bottoms are indicative of Designated Market Makers establishing long term capital gains positions. When the price is dropped on the first downward leg he accumulates a considerable amount of stock from the sell-off. I believe the double bottom exists because on the first leg up he does not want to supply the market with inventory from his own accounts. He wants to keep those accounts intact. He supplies the demand by shorting the stock. This necessitates the second downward leg in order to cover his short positions and/or accumulate additional stock. After he covers his short positions he will then begin the second leg up and complete the double bottom. Once again the DMM is attempting to capture the float. I believe he has successfully completed this phase of his merchandising cycle because the recent volume has been lower than the average daily volume. Where these events are taking place within the price structure is also very important.
Jim Cramer recently gave Pitney Bowes a sell rating. In my view, selling at the 52 week low seems foolish. Why wouldn't you sell at the 52 week high instead? If one cannot avoid being made a fool, then one should at the very least sidestep the trappings of a clown.
(click to enlarge)
On the basis of the foregoing these are my views and observations:
The Trade:
I recommend establishing a long position in Pitney Bowes Inc. Open your position with only 1/4 of whatever capital you intend to commit to Pitney Bowes Inc. at $13.15. Purchase the remaining 3/4 of the position at $12.10 and stop out at $11.60. Do not post your stop out. I have said it before but it is so important that at the risk of being redundant and in an abundance of caution I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again. In addition, when a stop out is triggered, it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the Flash Crash? I would be looking to exit the trade at an upside price target of $14.50. Do not allow this position to exceed 5% of your overall portfolio.
There is always the possibility that the trade may not work out.
There Is Never A Sure Thing (particularly on a short)
Investors must realize and recognize that there is never a sure thing. Sometimes events that have a low probability of occurring bring forth very serious consequences should they come into being. Investors must judiciously consider what the inherent practical limits are and how much they stand to gain in relation to the risks involved in establishing any position.
In addition, persistence can become desperate folly by allowing a losing position to become a viable argument for deciding on a new position. Rather, such decisions should be based on the current and soon-to-be circumstances.
Any position in which one unexpected factor has a significant impact on your portfolio is the result of poor planning. It is a fault most commonly associated with people who want to explain away their losses. SUN TZU -Art of War "Use an attack to exploit a victory, never use an attack to rescue a defeat."
If you follow the process recommended and the trade does not work, the overall loss in this model is $3,000.00. That amounts to 0.3 of the overall portfolio (theoretically valued at $1,000,000).
And finally, never be a brave and brainless investor because a fool and his money are soon parted.
A portfolio of $1,000,000 should position size in the following manner.
This is a trade, not an investment. Be ever vigilant.
That's it for now ... Have a nice day.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PBI over the next 72 hours.
